Say for example that you have a credit card with a 12% interest rate and you are paying the minimum on that every month. The debt on the card is $10000 dollars, then you are paying $1200 per year in interest. That $1200 could be used to purchase your furniture, or pay for the vacation you wanted to go on.

Therefore, if you pay down that debt to $6000 by paying $4000 from your taxes, you can decrease the interest you are paying down to $720. That is almost half the amount that is going back into your pocket for the year.

When you invest in yourself by paying off your debt with your tax return, you are investing in the increased freedom you will have in the future.

If you were planning to invest your tax return, you are looking at your turn around as a benefit of investing. This is true, however if you are getting a turn around of 4% on $4000 but you are paying 12% on $10,000, then you are still paying much more out than you are having come in.

Before you invest any money in anything else, it is important to make sure you are not paying for someone else to carry a loan of any kind for you. Now I am not saying close out your accounts or never use a credit card. However, I am saying that paying out interest to increase the income of someone else will not help you. Even, if you have money going into investments.

With this in mind it is a good idea to find the loans that are costing you the most amount of interest and paying them off as quickly as possible. This takes a little research on the interest rates and fees you are paying out, but it will pay off in the long run. You can use this same logic with any money you have coming in.

Calculate the money you are paying out in interest alone and figure what income you would still have available if you were not paying that to someone else. It is still a good idea to keep your accounts open, and use a revolving credit card to build your credit. However in order to make things easier, use these tools only as a complimenting factor to your current income. You may need to save up in smaller amounts, but the money you are saving, you can turn around and invest and make you money, instead of costing you money.

If you think that even the smaller amount of a tax return you got would not help pay off any bills because it was not enough, think again. This is not the case. As in the example earlier, even paying off part of the $10000 debt helped to increase the money coming back into your home. Therefore the equation still works if you can only pay off $500. It will still mean that you are paying less for that bills interest than you would have.

You are also paying full principal on the bill. You are not paying only interest. This is the case for most loans you are paying. You pay the interest for the most part and a little on the principal.

In completion of this thought, you are the one in control of your money. Choose what option is going to make good use in your mind with your tax return. Though, we all like a little extra money in the log run, even if it takes a few months to get it.